Buying Our Land

David Shearer brings many things to the role as Labour leader, but one thing he doesn't bring is baggage.

Shearer has been in Parliament for less than three years, and has never been a Government MP. So attacks by John Key on Labour's record in office, like this one, ought to bounce right off him.

With the Crafar Farms sale Shearer has found an issue that resonates with the public. Many people fear we are in danger of losing our best productive assets to overseas buyers.

But it isn't enough for Shearer just to grandstand. Labour needs to set out clearly what sorts of foreign investment and foreign capital are wanted, and what sorts we can do without.

New Zealand businesses are often starved of capital, and foreign investment can help fund their growth. Overseas companies will also often have expertise and networks that can help New Zealand businesses to expand. So we should be wary about any campaign generally against foreign ownership or investment.

What we need to encourage is the right sort of investment. 

But what exactly is the right sort? For example, do we insist on retaining land ownership as part of any deal? Do we exclude strategic assets of national importance from any foreign investment? If so, what do we regard as "strategic assets"? Power companies? Telcos?

If we look back at what took place with the sale of government assets in the 1980s and 1990s, we can see that some of those sales (often at bargain-basement prices and to foreign companies) offered little to New Zealand and were manifestly bad deals. The Government is at risk of repeating those same mistakes with its asset-sale programme, and in all likelihood a large number of the shares to be sold in our state-owned assets will end up in the hands of overseas companies.

New Zealand's overseas investment laws are quite liberal, and most foreign investment doesn't require any sort of approval. The Overseas Investment Act 2005 currently provides that the purchase by overseas persons of certain categories of land (referred to in the Act as “sensitive land”) needs the consent of the Overseas Investment Office. Farmland is generally subject to the consent process. Some investments in New Zealand businesses also need consent, generally being those where 25% or more ownership or control is being taken and where the value of the transaction is over $100 million.

The rules about the sorts of transactions requiring consent are reasonably clear, but it might be time to have a debate about whether they are too permissive, and whether they strike the right balance.

We should also recognise that wherever we set the bar, any consent process will involve a good deal of subjective analysis by OIO officials. The criteria by which applications are to be assessed are set out in the Act and its regulations. The process requires applicants to establish, among other things, that they have good character, business experience and acumen; and that there will be a benefit to New Zealand from the investment. There seems a good deal of scope for questionable investments to be signed off, because one person's incompetent rogue will be another's upstanding and experienced businessman.

Even if the OIO recommends the acceptance of an application, the relevant Minister/s can always turn it down, although they risk a judicial review by an aggrieved applicant if there are not good grounds for their decision.

I'm not entirely sure that we could ever design a system that avoided the need for officials or ministers to exercise judgement, but it may be possible to design clearer legislative and regulatory guidelines.

I don't profess to have a magical solution, and I'm not sure what the right balance is between protecting our economic sovereignty and encouraging overseas investment. But it feels wrong to see large sections of good farmland going to overseas companies. How is selling our land going to benefit us in the long term? We have only a finite supply of the stuff. As Mark Twain famously said, they're not making it anymore.

What would you do?